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Hello, forex friends! Pip Diddy noted in his latest Top Forex Market Movers of the Week that Chinese economic reports were one of the factors driving risk sentiment during the previous trading week. And if that made you think about how China’s economy is doing lately, then this Forex Snapshot may be just what you need.

Note: As with all Forex Snapshots, there are nifty table at the bottom, so you can skip to those if you’re a forex trader who’s in a hurry. The bullet points provided highlight the underlying details and trends that give the numbers their proper context, however.


  • China’s Q1 2016 GDP expanded by 6.7% year-on-year, which is in line with market expectations, but it slightly lower than Q4’s 6.8% growth.
  • In terms of trend, the year-on-year reading has been growing at a slower pace for the third consecutive quarter now.
  • The last uptick was back in Q2 2014 when GDP grew by 7.4% (7.3% previous), GDP growth trended lower after that.
  • The current reading is also the slowest rate of expansion since the 2008 global financial crisis.
  • For reference, the PBoC’s target range for annual GDP growth in 2016 is 6.5%-7.0%.
  • Quarter-on-quarter, China’s GDP only grew by 1.1%, which is the lowest reading on record.
  • This is the second straight quarter that quarter-on-quarter grew at a slower rate.
  • In terms of output, industry, which includes mining and manufacturing (among others), continues to drive China’s growth, accounting for around 33% of GDP.
  • Industry grew by 5.8% year-on-year, with manufacturing growing by 6.5% while mining was up by 2.1%.
  • Using the expenditure approach, fixed asset investment was one of the main drivers for GDP growth.
  • Fixed asset investment grew by 10.7% year-on-year (10.0% previous), but private investment only made up 62.0% of total investment, with the massive 23.3% increase (10.9% previous) in public investment contributing to the rest.
  • Consumer spending was another driver for GDP growth, growing by 10.3% year-on-year (10.7% previous).
  • Trade was a drag to the annual reading, though, thanks to exports sliding harder by 4.2% year-on-year (1.8% previous) in Q1 2016.


  • The month-on-month headline reading for China’s March period CPI suddenly dropped into negative territory, printing a -0.4% after spiking higher by 1.6% previously.
  • This is the poorest reading since March 2015, and it is also the first negative reading since October 2015, breaking the monthly reading’s 4-month uptrend in the process.
  • The main reason for the sudden month-on-month decline was the 1.3% drop (+4.6% previous) in the price of food, tobacco, and alcoholic products, which subtracted around 0.4% from the monthly CPI reading (+1.4% previous).
  • Year-on-year, CPI grew by 2.3% in March, which is the same pace as in February and almost a 2-year high.
  • The annual CPI reading has been in an uptrend for 5 months now.
  • However, the PBoC’s target for annual inflation in 2016 is around 3.0%.
  • The 6.0% increase (5.8% previous) in the price of food, tobacco, and alcoholic products compared to a year ago was the main driver for the year-on-year reading, contributing about 1.78% to CPI (1.74% previous).

Business Conditions & Sentiment

  • The official manufacturing PMI reading from the National Bureau of Statistics (NBS) came in at 50.2 for the March period (49.0 previous), which means that China’s manufacturing sector is just barely improving.
  • This is the first time that the official reading is back at or above the 50.0 stagnation mark after dropping to 49.7 back in August 2015.
  • The improvement affected all sub-indices, with both production (50.2 vs. 48.6 previous) and new-orders (51.4 vs. 48.6 previous) reporting the biggest boost.
  • The manufacturing PMI report from Markit/Caixin also printed an improvement, but it begs to differ since its reading is still below the 50.0 level at 49.7 (48.0 previous).
  • Still, this is the strongest reading in 13 months.
  • Commentary from the Markit/Caixin report agreed with the official PMI report in that both production and new orders increased, albeit only at a marginal pace.
  • The official non-manufacturing PMI reading from the NBS rose to 53.8 in March (52,7 previous), breaking two straight months of declines.
  • Looking at the components, the official services PMI reading from the NBS was 53.1, which is an improvement over the previous month’s 52.2 figure, thanks to an increase in new businesses.
  • The services PMI report from Markit/Caixin agreed with the NBS reading since it printed an improvement from 51.2 to 52.2, citing “slightly stronger expansion of business activity” for the improved reading.
  • Total industrial production in China jumped to 6.8% year-on-year in March (5.4% previous).
  • This is the strongest reading in eight months.
  • The large increase in industrial production was almost exclusively due to an unbelievable 7.2% jump in manufacturing output after stagnating back in February.

Consumer Sentiment & Spending

  • China’s official consumer confidence (courtesy of the NBS) slid to 100.0 in March (104.0 previous), so Chinese consumer sentiment is now neutral.
  • That didn’t stop Chinese consumers from buying lots of stuff in March, though, since retail sales increased by 0.85% month-on-month (0.81% previous).
  • Year-on-year, this translated to a 10.5% increase (10.2% previous)
  • In terms of trend, annual retail sales has been trending lower, with 11.2% being its recent peak back in November 2015 and 10.2% being its recent troughs.


  • China’s dollar-denominated trade surplus scaled down a bit from $32.59 billion to $29.86 billion in March, which is a one-year low.
  • However, China’s current trade surplus is $3.08 billion higher when compared to a year ago.
  • Exports also rose by 11.5% year-on-year (-25.4% previous), which is the first annual increase since June 2015.
  • Imports, meanwhile, declined by 7.6% year-on-year.
  • Imports have been declining non-stop since October 2014.

China's Economy: Growth

China's Economy: Inflation

China's Economy: Business Conditions

China's Economy: Consumer Spending & Sentiment

China's Economy: Trade

Putting it all together

China’s economy continues to grow at a slower pace, but the annual reading of 6.7% is still within the PBoC’s target growth range of 6.5%-7.0%, so the current reading may be bad, but it’s not overwhelmingly distressing (well, not yet anyway).

Still, a lot of market watchers have been openly saying that they don’t trust the official numbers, and that GDP could be much lower, but I’m not picking sides on that one. It is good to know, however, that both the official PMI reports from the NBS and the PMI reports from Markit/Caixin are saying that there was a pickup in new orders/businesses since that could mean a good start for Q2 2016.

Regarding CPI, it held steady at a two-year high on a year-on-year basis, but it’s still far below the PBoC’s target of 3.0% despite the stimulus that have already been introduced. Moreover, the month-on-month reading slumped back into negative territory, which helped to spark speculation that China may be forced to introduce another stimulus package soon. It remains to be seen if China will act, though, but that will likely help to influence market sentiment for a while.